Eleven Eurozone countries were today given the green light to proceed with a Financial transaction tax (FTT). EU finance ministers gave the countries their blessing in a meeting of the Economic and Financial Affairs Council. The Czech Republic, Luxembourg, Malta and the United Kingdom abstained.
The 11 countries, Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia can proceed with the tax under an enhanced co-operation. This rule allows a limited number of states to proceed with a measure.
A European Commission-led proposal for a common system of FTT was first adopted on Sept. 28 2011 in order to ensure the proper functioning of the internal market and to avoid distortion of competition. However, the discussions received insufficient support within the Council. That proposal involved a harmonized minimum 0.1% tax rate for transactions in all types of financial instruments except derivatives (0.01% rate). The aim was for the financial industry to make a fair contribution to tax revenues, whilst also creating a disincentive for transactions that do not enhance the efficiency of financial markets.
In September and October 2011, the 11 member states wrote to the Commission requesting a proposal for enhanced cooperation, specifying that the scope and objective of the FTT be based on that of the 2011 proposal.
Following todays agreement authorizing the 11 member states to proceed, the Commission will now make a proposal defining the substance of the enhanced cooperation, which will have to be adopted by unanimous agreement of the participating member states.
In particular, it must be established that the objectives cannot be attained within a reasonable period by the EU as a whole. At least nine member states must participate, and the cooperation must remain open for any others that wish to join.
Requirements for enhanced cooperation are laid down in article 20 of the Treaty onEuropean Union and articles 326 to 334 of the Treaty on the Functioning of the European Union. In particular, it must be established that the objectives cannot be attained within a reasonable period by the EU as a whole. At least nine member states must participate, and the cooperation must remain open for any others that wish to join.
Frances FTT took effect in Aug. 1 2012 and will apply to investors purchases of French equities and naked sovereign credit default swaps. Various indications about how the new 200 bps tax should be applied by custodian banks have been published but it remains unclear how French corporations ADR programs, or swap contracts should be reported. The industry is also awaiting clarity on what would happen if a trade fails to settle on time or whether buy-side firms can claim rebates if they purchase shares through one broker and sell the same shares with another.
(JDC)